Liquidity drought’s conflicted Cassandras
Citi – Last man standing
Wednesday, August 17, 2011
by Louise Bowman
Following their two-hour meeting yesterday, Angela Merkel
and Nicolas Sarkozy refused to countenance either an expansion
of the European Financial Stability Facility (EFSF) beyond its
proposed 440 billion or the issuance of jointly
guaranteed euro sovereign bonds. Europes political
leaders remain reluctant to accept that the only way to resolve
the regions funding problems is for the core countries to
shoulder the burden of support for the periphery.
Eventual expansion of the EFSF beyond its proposed and woefully
inadequate 440 billion is seen as inevitable by most in
the market. But the implications of such an increase on its
guarantee structure worry national leaders. A sharp increase in
the EFSF guarantee commitments of the seven triple-A rated
eurozone members will weigh heavily on their debt-to-GDP
ratios, threatening their ratings.
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